MARKET PSYCHOLOGY & CYCLEYou will often come across the term market psychology. This is different from your personal psychology. Market psychology is the same as market sentiment we just discussed. Market psychology is the overall feeling that the financial market is experiencing at any given particular time. There are several factors that contribute to this market psychology and include economic circumstances, expectations, fear, greed etc. All these factors taken together actually contribute to the trading patterns of the investors. There is nothing much you can do about this because, apart from hardcore economic circumstances, human psychology also plays a very vital role in determining the overall market sentiment.
The problem is that all humans cannot be rational. Many of the traders will be driven by emotions like fear and greed. As an individual trader, no matter how rational you are, the moment you see that majority of people thinking that market will move in a particular direction, your rational mind will face a revolt from your emotional side and even if you know that majority of the people are thinking wrong, you may still end up trading in the direction they are trading.
It is because of this weird conflict between rational mind and emotional side that you cannot really depend solely on fundamental analysis of market. Often times, it is very important to go for technical analysis too because it will tell you, without taking account of emotions, the direction or the pattern that the market is following. Technical analysis is based on historical price data. This is crude data we are dealing. They are numbers that are brutally true. The numbers don’t speak emotions. But again, technical analysis cannot alone give you the true picture and you will have to use fundamental analysis at times. So, market psychology can be like a dreadful nightmare but that is what you need to deal with by balancing between your fundamental analysis and technical analysis. Knowledge and education is key to success in binary options market. You cannot afford to be irrational but you cannot even ignore those irrational traders who can and do affect the market as a whole.
